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There was a the time when the mutual fund industry was not a preferred vehicle of investing amongst the investors who had an inclination towards investing into equity (to help you understand I quote equity and equity mutual fund as example). Investor used to buy shares from the company through share issue and through the stock exchange if the share was listed. Or a shareholder can sell the share to the company itself, known as shared by back. But were these investors better off investing when they were doing directly into equities is a question that needs considerable thought.

To elaborate further, let’s understand how equity linked mutual fund route works. Under the equity linked mutual funds, the assets which are called the “units” has shares/equity or stocks available to the retail investors. One unit of an equity related Mutual fund comprises of several stocks of various diversified companies.

Between the two given equity investment option, the most populous is direct equity and about understanding equities. But contrary to popular perceptions understanding the equity segment is a complex activity and it requires expert knowledge, accurate information and full time

dedication. Factors ranging such as the global economies and their events,interest rates and how the central banks of various economies react or respond on these rates, the political events the Monsoons and how they are faired, other reason like market sentiments and the regulatory environment. All such reasons had always played a very important role in determining how the future growth capacity of a particular company or an industry will look alike and based on that function would determine the stock price. Now keeping a track on all such things is not an easy task and nor does many retail investors can possess such competences in all these areas. Hence, mutual fund is the best option available for a retail investor especially. To look in for the goal or the purpose of investing in a particular scheme besides the time duration that one would like to give. Analyses the risk appetite towards investments and then dedicate in a disciplined manner into the funds that would derive him towards his goal.

Now by doing so, the major thing that an investor accomplish through investing in mutual fund, is the benefit ofDiversification. Through the diversification process, an investor is able to garner number of stocks across various sectors and industries. He can also buy a stock, which are highly priced and is not capable of probably buying at such big prices, say for example, a mutual fund’s objective of buying only blue chip companies which are very rich in market capitalization, the ones which I have to name as the SBI in the Banking industry. The stock prices of such big companies are relatively very high. |So if an investor goes for an investment into a blue chip/large cap investment mandate, he would be able to buy all such jewels in the various industries and sectors.

Apart from being diversified, the other major thing that the mutual fund plays an important role is that they Are Professionally Managed. The professionally managed skills brought in by the fund in the management of the investor’s portfolio help the investor in attaining the desired objective/ goal, for which the particular fund management and its team works for. Therefore, with the these mutual fund investments, an investor can ensure a much better return than what an investor as an individual could have managed on his own. In today’s fast moving global and sophisticated markets, where people have many soul and family responsibility to take care of, an investor will do best by dedicating his money or his savings to some of the best managed fund management teams taking care of investor money towards a definitive goal of attaining the objective of the particular fund scheme and for the investor.

A another important thing that is very significant and that insulates diversification and professionally managed skill is that it further diversifies the risk. To make you understand this take an example say you have 1 lac Rupees and you bought few stocks of selected companies. Now when the stock market rallies, you benefit out of that situation and your price of the stock goes up leaps and bounds. But when you see the other side of the market when it goes drifting down, you really find complete erosion because you do not share much needed diversified portfolio of equity in your basket of investments.

So whether your investment is high or whether it is low, diversification through the mutual fund route reduces the risk of loss as compared to investing directly in those few stocks or shares. In that case, if you are investing into debt instrument, then a diversified portfolio of debts which is through Corporate Bonds, Debentures and money market instruments, your investment of a debt fund is also diversified as per risk is concerned.

Other than the risk being diversified, there is another important thing that comes in mutual fund investing, that is theCost of Transaction. A direct investor will bear all the costs of investing such as the brokerage, the custodian to security and so on when he is going through the direct route of investing, whereas in a fund he has the benefit of the economy of scale. The fund pays lesser cost because of larger volume, and benefit is passed on to its investors as well. Another thing that has to be noted is if you are a direct investor into equities or bonds, you find situations at times when you are unable to sell your investments which you have been holding, that easily or quickly. But when you invest through a mutual fund, it is more easily done, that is what liquidity has to play a role in mutual funds. Investing. In mutual funds which are open ended in nature has the tendency to be very liquid, they can be bought and sold any day, any trading day in the given year. Hence, an investor can liquidate the investment by selling the unit to the fund being an open ended one.

Mutual fund has got lot of benefits that are attached which helps a small or a big, retail or institutional investor to invest into the various tools and techniques and investment ideas and opportunities that are available in the market which are suitable enough to attain the objective or the goal that has been kept in mind by the investor before investing in the given asset class.

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